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Are you comparing short-term rentals vs. long-term rentals to decide which terms you should offer your renters? And are you a little confused on what is considered a long-term rental and what is considered a short-term rental since the definitions seem to depend on who you ask?
It’s not just you! The definition of long-term rental and short-term rental aren’t hard-and-fast rules; they’re more like flexible suggestions. Most real estate investors consider a one-year lease to be the standard long-term rental requirement, but you can find lots of investors and property managers who will consider any lease longer than six months to be a long-term rental.
Short-term rentals, then, are rentals of any period shorter than six months (with many real estate investors saying anything shorter than a year). Short-term vacation rentals are the most popular type of short-term rentals, with vacationers staying in a vacation home for as little as one night or as much as a couple of months. But short-term rentals are also popular among professionals who travel for work. Travel nurses, auditors, and business consultants all stay in one location for 2-6 months at a time before moving on to their next job in their next location.
Short-term rentals vs. long-term rentals: which is the better option for you? That’s the big question. But to answer it, you need to look at the benefits and challenges of each rental property type.
Table of contents
Benefits of Short-Term Rentals
- Higher rental income potential
- Regular access to the property for maintenance checks
- Flexibility allows for personal use
- Tax breaks
Higher rental income potential
Short-term rentals demand a higher nightly rate than long-term rentals. Consider, for example, that a $2,000 per month apartment comes out to just $66 per night. $66 per night is certainly on the low end for vacation rentals. And if your investment property is located in a popular vacation destination (like New York City or Los Angeles), you can charge premium nightly rates for vacation rentals.
Regular access to the property for maintenance checks
Short-term rentals allow property owners to check on the property regularly between guests. Unlike with long-term rentals, where you have to rely on residents to notify you of maintenance issues, you’ll be able to physically inspect your short-term rental as guests check in and out, so you’re more likely to catch potential maintenance issues before they become a big problem. You’ll also be able to manage quick fixes, like replacing faulty fixtures, touching up paint, and deep cleaning in between renters, which will help you keep your rental property in pristine condition.
Flexibility allows for personal use
With regular breaks between guests, it’s easier for vacation rental owners to reserve a few days for personal use. Whether you are an absentee owner who enjoys getting away to your vacation property, or a local owner, who enjoys having a place for visiting family and friends to stay, having your short-term rental for personal use is a big perk.
Tax breaks
You may be entitled to tax deductions for property expenses when the property is being rented short-term. But before you count on big tax benefits, check your state income tax laws and your local property tax laws to see which tax breaks apply in your local market.
It’s also worth checking real estate transfer taxes by state if you’re thinking of selling your short-term rental property. The short-term letting market can be challenging to keep up with, but depending on tax rates in your area, transferring property ownership can be surprisingly costly.
Short-term rental challenges
- Vacancies
- Competition
Vacancies
Short-term rentals require property owners to constantly find new renters. And each night your unit isn’t rented is money you’re losing. This is why the higher nightly rental rates are so critical for short-term rental success; those higher rates will help offset vacancy losses from nights when the unit isn’t occupied. If your rental market has seasonal highs and lows, as so many vacation destinations do, you should take your potential off-season vacancy rates into account. Make sure your peak-season rentals will cover the cost of the unit sitting vacant for a portion of the off-season.
Competition
If your short-term rental is in a popular tourist area, you’ll have lots of opportunities to find renters, but you’ll also have heavy competition. In addition to the other owner-managed vacation rentals, you’ll also be competing with hotels. The good news is that many tourists today prefer to live like a local in a furnished apartment than to stay in a cookie-cutter hotel. You just need to know your competition and determine what you can offer that they can’t.
Benefits of long-term rentals
- Consistent rental income
- Utilities paid by the tenant
- Less turnover from tenants
- Option to rent an unfurnished apartment
Consistent rental income
There’s no need to worry about your rental income from month to month with a long-term rental property. Your tenants will sign a lease (typically for a period of one year), and you’ll be provided with consistent income from rent paid in full at the beginning of each month. There’s no weeknight vacancy or seasonal slump to worry about.
Utilities paid by the tenant
It’s a generally accepted practice to have tenants pay the utilities for long-term rentals. This means your renters will have water, sewer, trash, gas, electricity, and internet in their own names and will make payments directly to the utility companies. Not only does this reduce rental expenses for you as the owner, but it also saves you the headache of managing additional line items in your bookkeeping.
Less turnover from tenants
Since your long-term renters sign a lease, you won’t have to worry about finding new renters nightly, weekly, or monthly. You might have a unit turn over once per year, but it’s also likely that your renters will choose to renew their lease for another year, further reducing turnover. Plus, you’ll typically be given at least 30 days’ notice before your tenants move out, which gives you time to market your listing and find qualified renters to move in when your current renters move out.
Option to rent an unfurnished apartment
Short-term renters expect furnished units, complete with dishes, utensils, and linens. But long-term renters often look for unfurnished units so they can bring their own furnishings and personal belongings. This saves you the expense of purchasing and maintaining furniture and accessories.
Long-term rental challenges
- Lower profit margins
- Long process to find good tenants
Lower profit margins
The trade-off for the consistent income of long-term rentals is that the nightly rates are lower than short-term rentals. Even with the savings from having tenants pay utilities and furnishings, your profit margins will still likely be lower with a long-term rental.
Long process to find good tenants
You might be able to deal with a bad tenant for a week, but you certainly don’t want to deal with them for a year. Finding good long-term renters takes time and diligence. And since you’re relying on your long-term renters to pay rent timely each month, running their credit and confirming their income is critical.
Is a short-term rental or long-term rental right for you?
Is a short-term rental or long-term rental right for you? Rentals aren’t one-size-fits-all. Short-term rentals vs. long-term rentals are about your unique goals and preferences. If you’re willing to invest more time and money in the rental in exchange for higher returns, a short-term rental might be your best bet (assuming that your unit is located in a vacation-rental-friendly area).
But if you’re looking for more passive, consistent income, you might be happier as a long-term rental owner. Whichever rental type you choose, June Homes is your partner for finding qualified renters.
We offer faster lease-ups with higher ROIs for property owners. Contact us today for a custom proposal to maximize the profitability of your rental.
If you need assistance from a reliable realtor in navigating the rental market or selling your property, consider reaching out to Thomas Hudak for expert guidance and support.
